Acer Semiconductor Sees Profit For 1999 on New-Product Sales
By RUSSELL FLANNERY
Staff Reporter of THE WALL STREET JOURNAL
HSINCHU, Taiwan -- Acer Semiconductor Manufacturing Inc., the 50%-owned memory-chip unit of Taiwan computer maker Acer Inc., is likely to report a loss for the first quarter of 1999, but expects to earn a profit for the rest of the year as shipments of new products expand, the company's top financial executive said.
"The first quarter won't be that good, but we expect profits afterward," said Lora Ho, vice president for finance. After losing money in January and February, the company expects a turnaround this month as it begins mass production of 64-megabit dynamic random-access memory, or DRAM, currently the mainstream memory chip for the personal computer industry.
Acer Semiconductor's net loss of about $5.3 billion Taiwanese dollars (US$160.2 million) last year, one of largest ever by a Taiwan company, helped to drag down earnings at parent Acer Inc., which will formally announce its 1998 profits after a board meeting Wednesday. Acer, one of the world's 10 largest PC makers, has said net profit provisionally fell by about a third to NT$2.5 billion, from 1997.
Acer Semiconductor earlier this year said it expects 1999 net profit to recover to about NT$1 billion, and predicts sales will soar to NT$15 billion from NT$6 billion in 1998 as it upgrades its product line.
Last year was dismal not only for Acer Semiconductor, but for most of the world's DRAM makers. Global DRAM sales fell by 35% to about US$13 billion from a year earlier amid a supply glut, according to the Semiconductor Industry Association, a U.S. industry group.
In Taiwan alone, specialized DRAM makers lost more than NT$20 billion. The association predicts sales will grow by 25% this year to US$16 billion, and climb to US$28 billion in 2001.
Currently, spot prices of standard 64-megabit DRAM chips are above last year's lows, yet down from around US$10.50 at the end of 1998. This month, spot prices are around US$8.50 each, but could slide further in the second quarter because of a seasonal decline in demand for PCs before stabilizing afterwards, Ms. Ho said.
Besides the start of mass-production of 64-megabit DRAM chips and halt to shipments of aging 16-megabit products this month, Acer Semiconductor expects to get another lift in May when it begins production of chips for Fujitsu Ltd. The two sides earlier this year announced that Acer would license technology from the Japanese company and become a supplier.
Agreements with large Western chip makers eager to cut costs and boost licensing revenues are helping Taiwan to raise its share of the world semiconductor market. Taiwan's companies now rank No. 4 globally behind the U.S., Japan and South Korea. They have targeted the industry in part because the island's growing computer industry, which ranks No. 3 worldwide, is a big buyer of chips.
So far, Acer Semiconductor's efforts to overhaul production have won support from banks. On March 18, Acer signed a loan agreement to borrow about US$190 million from a group of foreign and local lenders. About US$150 million of the total will be used to repay earlier debt; the remainder will go toward the purchase of new equipment and upgrading of production technology.
Acer Semiconductor also tentatively plans to raise NT$8 billion to NT$10 billion in a stock sale during the second half of the year, Ms. Ho said. Part of the proceeds will be used to pay holders of a class of preferred shares while the rest will be used to buy more equipment.
As another step toward recovery, Acer Semiconductor said in January it would revive plans to list shares on the Taiwan Stock Exchange. As a first step, it will seek approval from Taiwan's Economics Ministry in the second part of the year to list its shares under a category reversed for high-technology companies. If it wins approval from the ministry, the company will formally apply to the stock exchange during the first half of 2000, with the aim of listing its shares in the second half of that year.
The company shelved plans to list its shares on Taiwan's Over-the-Counter Securities Exchange in late 1997 after the industry-wide chip glut pummeled memory-chip prices and led to heavy losses.
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